Wednesday, December 24, 2014

exposing the crisis in nonprofit
fraud leadership…a crisis of pervasive and monumental waste, fraud, abuse,
mismanagement, and malfeasance throughout the charitable sector which
costs taxpayers and contributors tens of billions of dollars annually;
and,

seeking reforms that will restore
the public’s lost confidence in the sector.

What’s
Included:

Skunk of the Month:

Troubled American Red Cross, again

Charity Check Up:

Suing Director

A Thought or Two:

Charter
School ‘trade secrets’

Nonprofit News-In Case You Missed It:

Fidelity Charitable; Annual
Giving; N.Y. Telemarking Rules …more

Political/Official Chicanery:

CA; IN; NC; MN; OH; KY; MO; NH; CO; MI;
IL; NY…more

What Do You
Think?

State law still determines whether a
given entity is “charitable,” State law continues to determine the propriety of
a charitable fiduciary’s conduct.

There seems to be virtual consensus
that in most states, enforcement of charity and the obligations of charitable
fiduciaries has long been essentially nonexistent.

There is a steady
decrease in the number of charitable organizations examined. In 2011, the
examination rate was 0.81 percent; in 2013, it fell to 0.71 percent. This rate
is half that of corporations (1.4 percent). (United States Government Accountability
Office) (Paul Streckfus, editor, EO Tax Journal)

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The second most common
motive for embezzlement was gambling; the first “desire for a lavish
lifestyle.” (Marquet International
study of major embezzlement cases nationwide)

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The term “toxic
environment” has been used to describe so many boardrooms in Vermont… “It is no
wonder so many capable Vermonters are just saying no thanks when asked to serve
on local nonprofit boards.” Bennington Banner

Skunk of the Month…

Skunk of the Month is the twice-monthly designation
made by Nonprofit Imperative, the
organization dedicated to eliminating waste, fraud, abuse and mismanagement in
nonprofits and government. The Skunk of the Month award is given to
charities and government officials who show blatant disregard for the interests
and trust of contributors and taxpayers. This month’s example is:

“They
came to do good and they did very well indeed (for themselves).”

American Red Cross Employees Doubt Nonprofit's Ethics and Future

A survey
of American Red Cross employees shows a crisis of trust in the charity's
leadership and deep internal doubts about the Red Cross' commitment to ethical
conduct.

Asummaryof the survey
results, obtained by ProPublica and NPR, was released internally in September. The survey was
completed by a bit more than half of the Red Cross' roughly 25,000 employees.

In
response to the statement, "I trust the senior leadership of the American
Red Cross," just 39 percent responded favorably.

About 4 in
10 respondents doubt the ethics of the venerable charity. The employee
survey, which was conducted by IBM, notes
that other companies scored better on the questions about trust. About 20
percent of respondents at other companies expressed concern about their
organization's ethics, compared with nearly 40 percent for the Red Cross
survey.

Most of
the survey respondents do not believe the Red Cross has a bright
future. In response to the statement, "The senior leadership of the
American Red Cross has communicated a vision of the future that motivates
me," 39 percent responded favorably. That compares with an average 61
percent of respondents from other companies in response to the same question.

------------------------

Charity Check Up:

Rare Occurrence: Sue Directors and Officers…still
monitoring

A Pennsylvania Appellate Court has allowed
creditors to sue directors and officers of a nonprofit nursing home for breach
of fiduciary duty and deepening insolvency before bankruptcy.The
debtor,Lemington Home for the Agedis
a nonprofit, tax-exempt nursing home. In determining that the Home’s directors
could be held personally liable, the Court relied on the fairly egregious facts
and circumstances leading up to the filing of the bankruptcy petition.

A Thought or Two:

Nonprofit Charter School Opens Up On “trade secrets”

As ProPublicadetailedlast month, both a chain of charter schools and the company
that manages them, were founded by a politically connected local businessman,
Baker Mitchell. Millions of public dollars have flowed through the nonprofit
schools to Mitchell's for-profit charter-management firm and another company he
owns. A believer in the power of the free market
to drive education reform, Mitchell makes no apologies about the arrangement.
He has also fought to keep the financial details of his management firm secret.

After more than a month of wrangling with state regulators itturned oversalary data for administrators working
at the schools.

But the salary list has a curious
omission. The son of the schools' founder, despite working as "Information
Systems Admin" at one of his father's schools, is missing from the
disclosures.

The salary list submitted to regulators last week is marked
as containing "proprietary and confidential" trade secrets
"owned by a private person, Roger Bacon Academy." The State Board of
Education releasedthe list. (source)

1.A flood of contributions to donor-advised funds pushed assets
of the charitable accounts to a new high of nearly $54-billion in 2013,
according to a new report. Donors poured more than $17-billion into the
accounts, an increase of 23 percent, according to thereport. The surge of contributions, along with healthy growth in
the stock market, helped assets in the accounts grow by nearly 20 percent. But
the study also found that those accounts distributed a slightly smaller share
of assets to charities last year than in 2012.

2.People are feeling more generous in 2014: for
example, Fidelity Charitable made $1.6 billion in total donor-recommended
grants for the first nine months of this year, up 27% from the year-ago period.

3.With its budget falling and its workforce
shrinking, the Internal Revenue Service lacks the resources to go after suspect
charities or sufficiently assist state regulators of nonprofits, the citing a
report released bythe U.S. Government Accountability
Office, a federal watchdog agency.

4.The United States climbed
into the top 10 on an annual ranking of the countries with the most charitable
people but still lags behind smaller and poorer nations like Myanmar, Malta,
and Thailand. The World Giving Index 2014reportreleased today puts the United States
ninth for giving to charity, up from 13th place on the 2013 index. According to
the report, 68 percent of Americans surveyed last year said they had made a
charitable donation in the previous month. That figure—the highest reported for
the United States by the five-year-old index—is up considerably from the 2011
low of 57 percent. The increase may reflect that Americans are acutely aware
that the recession’s effects linger even as the economy rebounds, says Ted
Hart, chief executive of the U.S. office of the Charities Aid Foundation, which
released the index. "The scars from the Great Recession are still
here," says Mr. Hart. "A lot of people are still hurting, and
Americans want to help." The United States also scored in the top 10 on
the index’s two other measures of altruism: helping strangers in need (first)
and volunteering (fifth). Seventy-nine percent of Americans surveyed said they
had helped a stranger in the previous month, while 44 percent said they had
volunteered. The United States was the only country in the report to rank in
the top 10 on all three measures.

5.Attorney General Eric T. Schneiderman today called
upon the Federal Trade Commission to update the Telemarketing Sales Rule in
order to reflect realities of today’s marketplace and better protect consumers
from unscrupulous telemarketers. As detailed in Attorney General
Schneiderman’s most recent“Pennies for Charity”report, for-profit telemarketers often retain a very
high percentage of charitable donations they raise from the public. In 2012, an
average of only 37.5% of funds raised by telemarketers were retained by the charities.
In 50.3% of the campaigns, the charities retained less than 30% of the funds
raised, or the expenses exceeded contributions. Since that report, the Attorney
General has taken action against eight entities under investigation for
fraudulent fundraising.

6.The Korean Social Service Center in Manhattan will
be shuttered after authorities say the president of the nonprofit has pleaded
guilty to grand larceny, fraud and tax fraud charges in a scheme to prey on
elderly Korean-Americans by taking money and falsely promising placements in
preferred housing.He fraudulently collected
$780,000

7.Lenient justice, in Texas: He fraudulently took $780,000
and pleaded guilty, but will serve no jail time. (source)

8.Nonprofit organizations
saw the assets they manage that are committed to social-impact investments
increase 77 percent in 2014 compared with their 2012 level, according to a new
report. Foundations, pensions, educational endowments, and religious groups
managed $4.04-trillion in such investments at the beginning of this year,
according to astudy

9.The former accountant for the Agape Family Worship
Center has been indicted for embezzling more than $4 million from the church
over a period of seven years, church officials said. The thefts were hidden in
900 separate transactions.

10.The SUNY Research Foundation will pay $3.75 million after
federal prosecutors found that the troubled agency manipulated audits of its
health-care programs. It's the latest black eye for the secretive Research
Foundation, which is a nonprofit wing of SUNY and often used to help fund
salaries of SUNY leaders. In 2012,an
audit found it misused money;it
was accusedof giving a no-show
job to former Sen. Joseph Bruno's daughter. Its currentpresident is leaving.

11.The Rev. Timothy Kane, convicted of
stealing money from the now-discontinued Angel Fund to help the poor of
Detroit, was sentenced to 12 months in jail served over 5 years during the
months of June and December plus about 8 weekends. Kane was also sentenced to
pay $131,400 in restitution.

12.Two-timer: The former executive director
of the Peninsula Symphony (CA) is facing up to 16 years in prison after being
convicted of embezzling $272,000 from the orchestra of volunteers, Santa Clara
County prosecutors. Also, about 20 years ago, Carlton was convicted of
voluntary manslaughter in the strangulation of his wife.

13.84-year-old
FEGS Health & Human Services recently announced that it had an unexpected
$19.4 million loss in FY 2014. A newly appointed CEO informed staff of the
crisis saying that the loss“is particularly sobering, and demonstrates the immediate
imperative for change… Our intention is to create a smaller and more focused
portfolio of services.” A network utilizing over
350 locations throughout metropolitan New York area. FEGS is one of the
largest Jewish charities in the country, with annual expenditures of $252
million. The organization provides a range of social services $94 million in
government grants in the 2013 fiscal year and receives major funding from
UJA-Federation of New York.

We
flagged these few examples of nonprofit mischief

1.Cancer Screening Services (NY) $25 million

2.Domestic Violence
Intervention Project (WI) $116,000

3.National Science
Foundation thousands, plus

4.Department of Justice's
Violence Against Women program (WI) $130,000

30.Sierra Young Family Institute and Agape House for
Mothers, (MN) $460,000

Political/public official chicanery(just a few):

1.After
more than a year of bitter legal battles, Los Angeles city leaders have
approved a deal with the powerful Department of Water and Power union that
promises the first detailed, public look at how two controversial nonprofits
affiliated with the utility spent tens of millions of ratepayer dollars. The
agreement gives city officials "unfettered access" to financial
records held by the Joint Training
Institute and the Joint Safety Institute, which will be used to produce the first independent public accounting
of the groups' expenditures.

2.A longtime Fort Wayne
police officer was charged this week with one felony count of theft after
allegations arose that he stole several hundred dollars from a police nonprofit
organization. The allegations against him span from 2012 to 2014, according to
the probable cause affidavit.

3.A former Clare County Sheriff’s
Department employee was charged with embezzling a large sum of money from the
jail’s inmate account.

4.A former Raleigh
assistant city manager was indicted on an embezzlement charge in connection
with money missing from the Raleigh Business and Technology Center.The Business and Technology Center was left to
repay $48,000 in principal and interest within six months.

6.Brian
T. Hatfield, chief of the Harrison Township (OH) EMS from 2008 to 2012, was
sentenced to 6 1/2 years in prison and ordered to pay $345,000 in restitution
on charges of theft and money laundering. His family members, who spent time on
the EMS board, also were sentenced for their roles in the scheme. Investigators with the Ohio Attorney General's
Office found that these individuals misspent hundreds of thousands of dollars
from 2008 to 2012. Brian Hatfield was accused of selling the ambulances, the
EMS building, and the building’s contents, and using the money for personal
purposes, such as buying a new car, big-screen TVs, and computers.

7.Southeast Bullitt (KY)
Fire Department chief about taking in about $1 million a year and spending
only $375,000 to run the district.

8.The FBI is looking into
what happened to millions of taxpayer dollars an influential Pennsylvania
congressman, Representative Chaka
Fattah, a senior member of the House Appropriations Committee, steered to a nonprofit run by former members of his staff,
reportsThe Philadelphia Inquirer. Investigators are examining spending by the now-defunct
Education Advancement Alliance on a project to turn a former apartment building
into a center for needy schoolchildren to study math, science, and technology.

9.A northwest Missouri who
was just re-elected Harrison County prosecutor this month has admitted to
embezzling money from an elderly client. Richard Turner pleaded guilty to charges of wire fraud and
lying on his return, admitting he took more than $500,000 from a 94-year-old
retiree who suffers from memory loss. He said that over the past decade, the
victim's life savings funded personal and even helped to dig himself out of
bankruptcy. The victim is the widow of a federal judge, prosecutors said.
Turner spent $327,000 to pay off his mortgage and install a swimming pool. He
also spent $23,000 atWal-Mart store and
bought $19,000 worth of clothes.

10.FBI agents seized 20 boxes of documents from Los Angeles
Unified School District headquarters as part of an investigation into the
district’s failed plan to putApple Inc. (AAPL)iPads into the hands of
students and teachers. The documents taken yesterday by federal investigators
related to the technology project’s procurement practices, Superintendent Ramon
Cortines said in astatementon
the district’s website. The iPad initiative, spearheaded by former
Superintendent John Deasy, earmarked as much as $1.3 billion in bond money for
the tablets, infrastruture and curriculum software in the second-largest U.S.
school system. The school district’s inspector general had criticized the
rollout of iPads in schools, notingin Julythat
$2.1 million in equipment was missing or unaccounted for.

11.The bookkeeper for Mokelumne Rural Fire
District was arrested Monday on suspicion of embezzling more $8,000from the
fire agency.

12.An employee for the town of Troy, New Hampshire, is
facing theft charges after allegedly taking at least $15,000 of town funds and
using them for personal bills.

13.A former Eagle County (CO) employee was arrested
Friday on a warrant accusing her of embezzling $124,239 from the Eagle County
Clerk and Recorder’s Office.

14.Berrien County (MI) Board of Commissioners member
is accused of taking more than $150,000 from his job at the North Berrien
Senior Center.

15.The alleged theft of about $100,000 from
the union representing McLean County sheriff's deputy’s means causes such
as holiday food baskets for families in need and mentoring services for
children won't receive their usual funding.

16.A couple's involvement in a $5 million fraud scheme
rocked the Illinois Department of Public Health. An employee joined in by
taking money that was moving between approved nonprofit organizations from $11
million in federal public health grants

17.The former treasurer of an upstate New York fire
department---Le Roy Fire
Department--- has pleaded guilty to stealing $46,000 to finance a gambling
habit.

18.Take a look at headlines about New
Direction, a nonprofit sometimes called New Direction Local Development
Corporation. A New York Post exposé on
January 31, 2010, apparently prompted a
series of often overlapping investigations.Among other
irregularities, the group raised money for Hurricane Katrina victims who never
received the money. Here is a summary:

·New York State
Senator John Sampson is facing trial in January 2015. A former Senate Majority
Leader, he is charged with embezzlement, obstruction of justice and making
false statements to the FBI. He allegedly embezzled $440,000 from escrow
accounts on foreclosed properties. Sampson is reportedly also under
investigation for his role in the Aqueduct bid-rigging scheme, described below.
The investigations of Meeks reportedly led to Sampson.

·New York State
Senator Malcolm Smith is facing trial in February 2015, along with several
Republican Party officials. The arrests resulted from a scheme to bribe
Republican officials to allow Smith to run for New York City mayor as a
Republican. The Smith investigation was reportedly prompted by media coverage
of New Direction, in which Smith was also involved.

·On September 10,
2014, Melvin E. Lowe, a New York political consultant, was found guilty of
conspiring with State Senator John Sampson of Brooklyn to defraud the New York
Senate Democratic Campaign Committee out of $100,000. The Sampson investigation
apparently led to Lowe.

·On August 11, 2014,
Albert Baldeo, a Meeks associate and Democratic Party leader in New York City,
was convicted of obstructing justice. He reported phantom donors to his
unsuccessful 2010 City Council campaign in order to qualify for taxpayer
matching funds. The scheme was described in aNew York Poststory
of October 2011, based on information provided by NLPC.

·New York City
Councilman Ruben Wills was arrested on May 7, 2014. He is accused of looting a
nonprofit group he controlled that was the recipient of taxpayer funds. At the
time, Mills was Chief of Staff to former State Senator Shirley Huntley
(D-Queens) who was convicted and imprisoned for a similar scheme that was
exposed by NLPC.

·On December 5,
2013, Dr. Dorothy Ogundu was arrested on the basis of information provided to
theNew York Postby
NLPC. A Nigerian-born physician, Ogundu ran a fake health clinic in Queens, New
York. She was accused of stealing $370,000 from twelve separate government
grants. She is a donor to Meeks, who secured $380,500 in earmarked funds for
the fake clinic.

·In January 2013,
Huntley was convicted of fraud. In March 2011, a New York Postarticle
exposed a sham charity she founded called The Parents Workshop, to which she
steered taxpayer money. An aide and her niece helped her siphon off $87,000.
Huntley was arrested in August 2012 and spent a year in prison.

·On July 28, 2012,
theNew York Timespublished
a front-page story. The article spotlighted a "mysterious donor"
named Bob Williams who made $900,000 in political contributions despite having
no visible means of support. To date, Williams has not been prosecuted.

·The media coverage
of New Direction resulted in scrutiny of a successful bid by Aqueduct
Entertainment Group (AEG) for a lucrative gaming franchise at Aqueduct Raceway.
Some of the same individuals involved in New Direction also were involved with
AEG. The franchise was revoked and an investigation is reportedly underway into
a bid-rigging scheme. According to media reports, the Aqueduct controversy was
a major reason Governor David Paterson did not seek re-election.

Nonprofit Imperative gathers its
information principally from public documents...some of which are directly
quoted. Virtually all cited are in some phase of criminal proceedings; some
have not been charged, however there is money missing. On rare occasions, there
may be duplicates.

Gary
Snyder is the author of Silence: The Impending Threat to the Charitable
Sector (Xlibris, June, 2011) and Nonprofits: On the Brink (iUniverse,
February, 2006) and articles in numerous publications. The book can be bought
at amazon.com,barnesandnoble.com, Barnes and Noble (store)

About Me

Gary Snyder is the author, most recently, of the groundbreaking expose on the charitable sector, Silence: The Impending Threat to the Charitable Sector as well as the often-cited guide on best practices and key concepts, Nonprofits: On
the Brink.

He is the publisher of a
twice-monthly newsletter, Nonprofit Imperative that gives an update on the current status of the
charitable sector.

Snyder is often quoted and frequent contributor to the blog of the National
Committee for Responsive Philanthropy. Snyder twiceauthored the Governance Chapter of the Michigan
Nonprofit Management Manual (4th and 5th editions).

He is a speaker on ethics,
financial and governance matters of the sector. For almost a decade, Snyder is frequently
consulted by Congress and has been quoted in print, broadcast and online media
outlets.